DALLAS - In one of its larger deals in recent years, the Texas Public Finance Authority plans to issue $445 million of general obligation bonds that will include funds for cancer research and prevention.
"The indications that we're getting is that the timing going to be good for a Texas credit to be in the market," said Lee Deviney, executive director of TPFA.
The taxable triple-A bonds are expected to price Oct. 14 through book runner Piper Jaffray, led by managing director Tim Kelley. Jorge Rodriguez, head of public finance at Coastal Securities, is financial advisor.
The final size of the issue could vary from the $445 million authorized, Deviney said.
The bonds will take out about $300 million of commercial paper issued for the Cancer Prevention and Research Institute of Texas, which was created by state constitutional amendment in 2007 with $3 billion of bond authority.
"When we get close to the liquidity limit with commercial paper, we issue bonds," Deviney said. "We may also issue some new money bonds."
The TPFA is one of the state's top issuers of GO bonds after the Texas Transportation Commission and the Texas Water Development Board. TPFA issues bonds for a broad array of agencies, including schools, higher education and other departments of the state.
As of Aug. 31, 2015, the TPFA had approximately $1.9 billion in outstanding GO bonds, according to Fitch Ratings.
Outstanding TPFA borrowing includes $716 million in bonds and commercial paper issued for CPRIT, an agency that got off to a rough start after questions were raised about grants for contributors to Texas political leaders' campaigns. Grants were temporarily suspended after top officials from CPRIT resigned in disputes about how funds were awarded.
After the acquittal of a former CPRIT executive on criminal charges and reforms enacted by the 2013 Legislature, the agency has sought to overcome the negative publicity that came during tenure of former Gov. Rick Perry, one of the strongest advocates for creation of CPRIT.
Perry, who recently ended his second campaign for the presidency, is facing trial on felony charges unrelated to CPRIT.
In the 2015 legislative session, questions lingered over how appropriate the state's role in fighting cancer really was. Over the next two years, about $1.5 billion of the taxpayer funded grants will have been awarded, CPRIT officials told the Texas Senate's Health and Human Services Committee.
State Sen. Charles Schwetner, R-Georgetown, who chairs the committee, said that lawmakers were beginning to question the funding strategy.
"I have my own concerns as to how involved the state should be in funding cancer research," Schwetner said. "Maybe [CPRIT] was oversold and has under-delivered to some extent."
In a speech last March, CPRT Executive Director Wayne Roberts outlined the agency's efforts in the battle against cancer. Product development grants of $288 million from CPRIT have attracted more than $865 million in follow-on funding from other sources, he said.
"CPRIT's $300 million annual appropriation is small compared to the $17.9 billion provided annually from other sources, including the private sector, federal government, and foundation/non-profits," Roberts said.
The program has also helped attract top researchers and physicians to the state, aiding major institutes in the state, he added.
"CPRIT funding has made it possible to recruit nearly 90 of the top cancer researchers in the world to Texas research institutions," Roberts said. "We're well on our way to having the finest cluster of cancer expertise in the world right here in the Lone Star State."
Medical treatment and research have become increasingly important components of the Texas economy, particularly in Houston, after the fall of oil prices over the past year.
The University of Texas M.D. Anderson Cancer Center in Houston's Texas Medical Center is one of the largest recipients of grants from CPRIT. The Texas Legislature created M.D. Anderson in 1941 as part of The University of Texas System. It is one of the nation's original three comprehensive cancer centers designated by the National Cancer Act of 1971.
M.D. Anderson has nearly 20,000 employees.
Employment in health care and social assistance in Texas grew sharply in 2014 and is expected to continue growing through this year, according to a recent report from the Federal Reserve Bank of Dallas. Medicaid enrollments in Texas began climbing rapidly and grew 13.4% last year.
"This rise, along with the rollout of the Affordable Care Act, likely contributed to a significant increase in demand for health services even though Texas opted out of the federal government's proposed expansion of Medicaid eligibility," the Fed report said.
Texas lost 13,700 jobs in August, the second month this year in which jobs lost outnumbered gains. In March, Texas lost 25,200 jobs, according to the U.S. Bureau of Labor Statistics. However, The Dallas Federal Reserve report projects that Texas job growth will be 2% to 2.5% in 2015, comparable to the U.S. level.
Sales tax revenues also fell this year after 62 months of increases. Comptroller Glenn Hegar attributed the decline to falling oil and gas prices. In the fiscal year that ended Aug. 30, the state's total revenues were slightly below projections.
"In our view, the volatility in the energy sector presents a potential downside risk to the state's economy, and an extended contraction in oil prices could hurt employment and other areas of economic growth in the state," Standard & Poor's analyst Kate Choban wrote in a Sept. 25 report on TPFA's upcoming deal.
For now, Texas will continue to carry a higher S&P credit rating than the United States, though there are signs of slippage.
"Based on the analytic factors we evaluate for states, on a four-point scale on which '1' is the strongest and '4' the weakest, we have assigned Texas an overall score of '1.6'," Choban wrote. "Although the '1.6' score corresponds to a AA-plus indicative credit level under our criteria, we view the state's credit quality as warranting the AAA rating because of the strength of the state's economy, growing level of reserves, and very strong financial management."
